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Chapter2SettingupAccountsChapter2Structure•AccountingElement,AccountingEquation•Journal,LedgerAccount•Double-entry•TrialBalance–assets–liabilities–equity–revenue–expenses–netincome(ornetloss)ⅠAccountingElementsEconomicResourcesClaimstoEconomicResourcesAccountingEquationAssets=Liabilities+Owner’sEquityⅡAccountingEquationAccountingEquationAssets=LiabilitiesStock-holders’Equity+TherightsofcreditorsTherightsofthestockholders•Currentassetsare–Thoseassetswhichthecompanyexpectstoconverttocash,sell,orconsumeduringthenext12monthsorwithinthebusiness'snormaloperatingcycleiflongerthanayear•Currentassetsinclude–Cash–Accountsreceivable–Merchandiseinventory–PrepaidexpensesAssets•Long-termassetsare–Thoseassetswhichthecompanyexpectstoholdlongerthenthenext12monthsorthebusiness’snormaloperatingcycleiflongerthanoneyear•Long-termassetsinclude–Property–EquipmentAssets•Intangibleassetsare–Thosewithnophysicalform•Trademarks•Patents•Otherassetsare–ThosewithsmallvalueswhichdonotfallwithinanyotherstandardassetcategoryAssetsTextLiabilitiesCurrentL.Long-termL.TextAccountspayableAccruedwages&SalariespayableSales&excisetaxespayableIncomeorpropertytaxespayableshort-termnotespayableDividendspayableEstimatedoraccruedliabilities……Long-termnotes,MortgagesBondspayableLiabilitiesOwner’sequity•Owner’sequitypresentstheinterestoftheownershipgroupinthenetresourceoftheenterprise,whicharisesfrominvestmentsbyowners,andwillincreaseordecreasewiththechangeofoperationresults.Owners’equityBalancesheetAssetsLiabilitiesOwners’EquityPrincipaldifferencesfordifferentformsofbusinessorganizationOwners’equityCreditorShareholderInvestedCapitalDebtStockCreditors’Equity(claimonassets)Owners’Equity(Residualclaim)EquityOwners’equityLiabilitiesOwners’equityAssetsOwners’equityisalsocallednetassetsornetworth.Owners’equityOwners’equityPaid-incapitalorContributedcapital缴入股本Retainedearnings留存收益Owners’equityinthecorporationhastwocomponents:Owners’equity•Paid-incapital(orcontributedcapital)istheamountthatstockholdershavecontributedtothecorporation.–Capitalstock:commonstockandpreferredstock–Additionalpaid-incapital•Retainedearningsistheamountofnetincomenotpaidtostockholdersasdividend.(reinvestment)–Isaffectedby•Revenues-increasesinretainedearningsfromdeliveringgoodsorservices•Expenses-decreasesinretainedearningsthatresultfromoperationsOwners’equityBeginningBalanceofRetainedEarnings+--=NetIncome(Loss)forthePeriodDividendsforthePeriodEndingBalanceofRetainedEarningsRevenuesforthePeriodExpensesforthePeriod-=COMPONENTSOFRETAINEDEARNINGSStartofthePeriodEndofthePeriodTHEACCOUNTINGEQUATIONAssets=Liabilities+Stockholders’EquityAssets=Liabilities+Paid-inCapital+RetainedEarningsOwners’equityOwners’equity•Inourcountry,owners’equityincludescapital、capitalreserve、surplusreserve、undistributedprofits。Owners’equityLiabilities,orcreditors’equity,aretheobligations,ordebts,thatthefirmmustpayinmoneyorservicesatsometimeinthefuture.Exercisea。Whataretheliabilities?Owners’equityisdefinedasthedifferencesbetweentheassetsandtheliabilities,andisoftenreferredtoasaresidualclaim——aclaimtotheassetsremainingafterthedebttocreditorshasbeendischarged.ExercisebWhataretheowners’equity?currentliabilities:•Accountspayable•Accruedwages&Salariespayable•Sales&excisetaxespayable•Incomeorpropertytaxespayable•short-termnotespayable•Dividendspayable•……Exercisec.Listsomeexamplesofcurrentliabilitiesandlong-termliabilities.long-termliabilities:•Long-termnotes•Mortgages•Bondspayabled.ExampleforAssets=Claims•SupposeABCCompanyhasassetsof$1600,liabilitiesof$600,andequityof$1000.Theseamountsappearintheaccountingequationasfollows:ClaimsAssets=Liabilities+Equity$1600=$600+$1000ExampleforAssets=Claims•1)TomCompanyisestablishedwhentheirownerspool$10,000intothebusiness.Theeffectsofassetsacquisitionontheaccountingequationare:e.AnotherExampleforAssets=ClaimsHowtheElementsofAccountingEquationChangeClaimsAssets=Liabilities+Equity$10,000=$0+$10,000•2)Next,assumethatTomCompanyobtainsanadditional$4,000ofassetsbyborrowingthemfromcreditors.Thisisalsoanassetsourcetransaction.ClaimsAssets=Liabilities+EquityBeginningBalances$10,000=$0+$10,000EffectofBorrowing+4,000=+4,000EndingBalances$14,000=$4,000+$10,000•Equityisusuallyregardedasasourceofassets,andthat'swhyitbecomesnecessarytosubdividetheowners'interestintotwoseparateitems.•First,owners'claimisestablishedwhenabusinessacquiresassetsfromowners.Sincetheseclaimsresultfromthecontributionsofcapitalresourcesbytheowners,theyarefrequentlycalledcontributedcapital.•Thesecondsourceofassetsthatisassociatedwithequityoccurswhenthebusinessacquiresassetsthroughitsearningsactivities-retainedearnings.So,theaccountingequationcanbedemonstratedlikethis:EquityAssets=Liabilities+ContributedCapital+RetainedEarnings•3)Theincreaseinassetsobtainedfrombusinessoperationsofprovidingcustomerswithgoodsandservicesiscalledrevenue.Gettingrevenuecanalsobeanassetsourcetransaction.•ToillustratetheeffectsofrevenueassumethatTomCompanyreceived$6,000inexchangeforservicesthatitprovidedtoitscustomers(notethatwhileassetsincrease,retainedearn